Defence mechanisms. Why NAB chairman Ken Henry lost his job

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Disclosure statement

Clare JM Burns does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

Between 2001 and 2011 Henry was the highly regarded head of the federal treasury. He steered Australia through the global financial crisis, led the Henry Tax Review, gave birth to the goods and services tax and the mining tax, and laid the groundwork for the emissions trading scheme.

In the private sector he rose to be chairman of the National Australia Bank, where he was also well-regarded until a disastrous appearance at the banking royal commission in which he offered the counsel assisting not a hint of contrition.

Do you accept that the board should have stepped in earlier?

I wish we had, let me put it that way. I wish we had – I still don’t know.

I would like you to answer my question, Dr Henry. Do you accept that the board should have stepped in earlier?

I have answered the question how I can answer the question.

I’m sorry. Is it a yes or a no, Dr Henry?

I’ve answered the question the way I choose to answer the question.

Late on Thursday Henry and his chief executive Andrew Thorburn stepped down, Henry telling Leigh Sales on ABC 7.30 he did not perform well at the commission and had reflected on the criticism.

The more I thought about it, and I can’t tell you how many times I’ve relived that appearance, I understand the criticism. I did not perform well. I really should have performed quite differently. I should have been much more open.

At the time, were you feeling defensive and resentful of being there?

I wasn’t feeling resentful. No. But I can understand why I came across that way. I was feeling defensive and I should not have been.

Defence mechanisms arise when the social order someone has become accustomed to is challenged. They try to restore stability through projection, denial, games, blame, or rationalisation.

In Henry’s case, his first defence mechanism was to deny that his board had engaged in serious misconduct.

One of his opposite numbers at the Commonwealth Bank, chief executive Matt Comyn, tried to suggest that he had had little choice but to continue to sell junk insurance policies on which most people couldn’t claim.

When he was in a more junior position as head of the retail division he complained to the then chief executive Ian Narev, and was told to “temper your sense of justice”.

Directors may not have sought to directly hurt vulnerable people, but the indirect consequences of their behaviour can’t be ignored: farmers have lost their land, dead people have been charged fees for no service, and First Nations people have been targeted for financial products they could not use.

Despite multiple previous inquiries the industry’s behaviour didn’t change because for the most part its directors’ assumptions didn’t change. Cognitive and emotional barriers to unlearning protected the assumption that it was OK to pursue profit at the expense of customers.

Strong financial success and weak law enforcement made it easier.

Since the global financial crisis there has been an increase in reports and brochures about corporate social responsibility as well as advertising espousing values. Some have labelled them window-dressing and organised hypocrisy, but it’s just as easy to see them as projection, as the directors and executives fooling themselves.

Replacing defensive mechanisms with mechanisms for changing a culture isn’t easy. Giving evidence to the Commission Ken Henry said it could take as much as ten years, although on 7.30 on Thursday he said he expected the NAB to do it more quickly.

The steps to take appear common sense - in hindsight. One of the first is to acknowledge the defensive mechanisms that exist. Then you can start untangling them at the top and then throughout the organisation.